David Dreman: About Value

We evaluate here the commentary of David Dreman at Forbes.com regarding the stock market via his archived articles since the beginning of 2001. David Dreman is chairman of Dreman Value Management. His investing philosophy is ” that the markets are not perfectly efficient and that, in particular, behavioral finance plays a considerable role in investor actions and over-reactions and subsequently in stock price movements.” The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that:

Since David Dreman makes few comments on overall stock market direction, we augment such forecasts with a few of his most prominent sector recommendations. We test the latter for timing by checking subsequent sector performance.

He is a committed value investor, which has made him mostly tech-averse the past few years.

David Dreman’s forecast sample is small, as is therefore confidence in the measurement of his accuracy.

Note that we use the Forbes.com magazine publication dates for the table entries, and they post-date their issues, meaning that Mr. Dreman actually prepares columns at least two weeks before the publication/entry date. This approach treats new forecasts the same way as those pulled from magazine archives.

See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus.

S&P 500 Index

Date

Comments from: David Dreman via Forbes.com

21-Day Return

63-Day Return

126-Day Return

254-Day Return

4/9/12

Given my bullish views, I am in buying mode. Be warned that it will not be a straight-line recovery.

-1.3%

-2.0%

5.7%

12.3%

+

9/26/11

Given their modest valuations, strong balance sheets and potent tailwinds from monetary policy, stocks are the place to be.

5.7%

7.8%

21.8%

24.4%

+

7/19/10

Are things really that bad? No. In fact, to me, this is a perfect environment for selective buying. …As an investor, you need to seize opportunities like the one we have now.

2.0%

9.6%

19.8%

23.8%

+

5/24/10

Does it make sense to buy now after the enormous rally that equities have already enjoyed? My answer is yes… If you hold good-quality stocks you should be well ahead a few years from now.

1.7%

-0.2%

11.5%

23.0%

+

3/29/10

This year I think you should maintain your stock market exposure.

1.5%

-8.2%

-2.1%

13.2%

+

12/28/09

…most investors are befuddled. They can’t accept that either the market decline or the economic downturn is over. Are they right to hesitate? Nope. They’re dead wrong. …fundamental factors lead me to believe we will see significantly higher stock prices ahead.

-3.8%

4.0%

-4.7%

11.5%

+

9/7/09

Buy stocks…

3.1%

7.9%

11.2%

8.2%

+

4/13/09

Even if stocks drop another 15% to 20%, they are likely to at least double from their current levels over the next five years.

5.8%

2.4%

24.1%

41.1%

+

2/2/09

This year may turn out to be the best of times for value investors. Stocks are cheap, and value stocks…are particularly cheap. I have not seen a crisis in my lifetime like the one we are facing now, and I think there is a good chance it will get worse before it gets better.

-13.6%

6.3%

19.6%

28.8%

+

11/17/08

…you should be very cautious for the next several months. …Keep some cash with which to buy stocks as they get cheaper… Investors should be skeptical about the goings-on in Washington. Hope for the best—but prepare for the worst.

6.3%

-7.3%

6.7%

28.7%

+

9/12/08

…don’t give up on the market.

-19.8%

-28.2%

-39.6%

-14.6%

-

8/11/08

Should you flee the market, given all this? It’s a tough call, but I wouldn’t. …If you pack up now, chances are you’ll miss a good part of the next bull market. A large part of the gains are always made in the first few months of one…

-5.6%

-30.7%

-33.4%

-22.4%

-

6/16/08

…the market is beginning to show signs of a comeback. The underlying fundamentals of the U.S. economy are still strong.

-8.4%

-8.0%

-35.8%

-32.5%

-

2/11/08

We will likely have a lot of volatility. Over the past year the annualized volatility implied by the prices of S&P options has gone from 10.4% to 22.5%. That trend won’t reverse for some time. I expect the market to likely end the year flat or down somewhat. A real bear market, which we can define as a 20% decline, is quite unlikely from here.

-2.3%

3.7%

-3.2%

-37.6%

-

10/15/07

Today’s stock market remains solid with good fundamentals and many cheap stocks at hand. The ongoing liquidity crisis must be handled gingerly, of course. Commit your capital slowly as several more shocks must be absorbed before a broad market rally begins.

-4.4%

-8.6%

-13.8%

-38.9%

-

9/3/07

Squalls Ahead

3.4%

-0.6%

-10.9%

-16.6%

+

4/23/07

There are fears that 1) the slowing economy will sink into a recession, 2) corporate earnings growth will slow and 3) the Federal Reserve won’t cut rates anytime soon, because inflation shows signs of picking up. At this point, however, I think these fears are unfounded. So wince and bear it. This is the type of market where big bucks can be made.

2.9%

3.6%

4.0%

-6.2%

+

2/12/07

…2007 will be a mildly positive year. Keep the quality of your portfolio high and you should have…price appreciation of 5% or more and whatever dividend yield you bargain for.

-3.2%

4.9%

1.4%

-5.9%

+

11/27/06

My bet is that we are in a solid rally that could gain steam as 2007 progresses. But there will be speed bumps along the way. …we should see a good market ahead.

3.3%

1.8%

10.7%

7.2%

+

7/24/06

…tough it out. You likely will be more than rewarded for your perseverance.

2.5%

8.4%

13.3%

15.7%

+

1/30/06

I expect a reasonably good [year] with the S&P 500 rising 10% or more including dividends. Stocks tend to get hurt by inflation in its early stages, but then they catch up after the first year or so of an ascending Consumer Price Index. I think we are at this inflection point now. Only if there’s a really sharp inflationary spike will the market’s rise be delayed.

Expect the S&P 500 to gain only 5% in 2005. Higher inflation will be the major drag, hurting more as the year progresses. Tech will sag.

2.4%

-2.1%

4.5%

7.6%

+

12/13/04

Overcapacity in tech and rising inflation will keep stock gains moderate in 2005. The antidote: Buy shares with nice dividends. Chances are…estimates will prove high. Don’t count on any P/E expansion. Multiples are already high by historical standards.

-0.9%

0.7%

0.2%

6.2%

+

9/20/04

Stocks are trading down near historical price/earnings ratios for the first time in almost a decade. Value stocks as a group are approaching, or are in, the bargain range.

-1.7%

7.2%

6.0%

7.8%

+

7/5/04

Oil prices will ease a bit. We won’t have a market crash. Buy stocks–especially oil stocks.

-1.6%

1.4%

8.6%

7.3%

+

4/19/04

…the bottom line is that both our study and S&P’s show conclusively that the supposedly safe stocks delegated for widows and orphans outperform by a country mile more risky stocks bought for capital appreciation.

-3.9%

-3.1%

-1.9%

2.1%

+

3/1/04

How is it possible that the present mania in tech and dot-com stocks began only 30 months after the implosion of the largest bubble in market history? Investors have simply been swept away on tides of emotion.

-2.5%

-3.0%

-4.9%

4.7%

+

11/24/03

Now, only three years later, we have another bubble. …value stocks…should do well when investors see them in a more balanced light.

4.0%

8.7%

6.0%

12.0%

-

7/7/03

First Call consensus forecasts put expected third-quarter earnings up 12.7% over 2002 and fourth-quarter ones up 21.1%. Too bad that nothing like that is going to happen… Investors today are not euphoric; they’re punch- drunk. And they will come to their senses eventually… I think we have seen the market lows…

-3.9%

1.6%

11.7%

10.8%

-

2/17/03

Expect a 2003 of high volatility, strong rallies, then horrendous drops. In short, it will be like 2002. The big difference is that the market should head up a bit.

2.7%

10.9%

17.5%

34.4%

-

10/28/02

With no economic upturn in sight, and P/Es high, markets should continue to be volatile. Still, value stocks remain bargains.

2.6%

-3.6%

3.0%

17.6%

+

9/2/02

Bear market or no, there are superb opportunities too enticing to pass up. While a recovery likely is far off, the current carnage has left fine stocks undervalued. Stocks are a lot cheaper than they used to be, but they’re not exactly cheap.

-5.7%

6.6%

-5.5%

16.3%

+

7/8/02

…if investors buy stocks now on the strength of rapturous S&P 500 earnings estimates for 2002, they have an unpleasant surprise ahead.

-12.0%

-16.2%

-4.9%

1.2%

+

3/18/02

Investors are overlooking the fact that the non-Enron outfits offer strong earnings and revenue growth, along with far more transparency.

-3.4%

-13.6%

-23.5%

-24.9%

-

1/21/02

What do I see for this year? More of the same: high volatility and a weak market. There’s a good chance the S&P will show little net change over the next 12 months from its present 1145.

-3.4%

-1.0%

-28.7%

-23.0%

-

12/24/01

Disappointments lie ahead for investors who buy at current lofty multiples. The market is too expensive, and earnings won’t be rejuvenated anytime soon.

-1.0%

-0.5%

-14.9%

-23.5%

+

11/26/01

Fleeing stocks is the predictable response to disturbing news, but is almost always the wrong move. One good recovery play should be smallcap to midcap value stocks.

-0.7%

-4.2%

-7.8%

-18.9%

-

10/29/01

If you hold sound stocks–those trading on proven earning power, not hopes and dreams–you should stay with them. In fact, if you can stomach the volatility, now is the time to buy.

4.7%

2.1%

0.8%

-17.9%

-

7/9/01

If you want to unload some of your shakier tech stocks in the current tech rally, look instead to buy real value names

0.5%

-9.8%

-4.4%

-24.4%

-

5/28/01

With the present volatility in tech, you likely will see these leaders become more affordable. Patience pays in a bear market. During this period other opportunities have presented themselves.

-4.5%

-6.5%

-10.1%

-18.8%

+

4/30/01

While there are a number of good tech values right now that you should buy, a lot have further to tumble.

-0.1%

-3.5%

-13.2%

-12.9%

+

3/5/01

Buy a partial position now in a handful of good techs, then purchase the rest later when the market heads lower, as it will.

-10.9%

1.6%

-8.7%

-7.0%

-

2/26/01

Now tech stocks have come to a level where I am willing to look at them. I am starting to nibble.

-6.7%

2.0%

-6.5%

-8.3%

-

2/5/01

This is a marvelous environment for value plays.

-6.8%

-6.5%

-11.4%

-17.4%

-

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